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Written by Dr Eamonn Butler
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Monday, 01 October 2007 |
Britain's Chancellor, Alastair Darling, has gone back on his
promise to guarantee 100 percent of bank savers' deposits up to
£100,000. The promise was brought on by the Northern Rock crisis, which
saw savers queuing by the thousand to get their money out of the
beleaguered bank. Now, though, Darling says that the taxpayer will
guarantee only the first £35,000.
That is not so far away from the existing deposit guarantee
scheme, which guaranteed 100% of deposits up to £2,000 and 90 percent
of the next £33,000. As I figure it, the most anyone could gain from
the new scheme would be an extra £3,300.
The u-turn is another example of another on-the-hoof that turned
out to be pretty dim. The banks feared that a 100 percent guarantee
would distort the market – prompting banks into higher-risk practices
in order to attract savers, knowing that the taxpayer would pick up the
tab if those risks led to disaster. And the Association of British
Insurers argued, very sensibly, that a guarantee of just £30,000 would
cover 98 percent of savers anyway – and that a higher limit might
simply encourage people to put their money into savings accounts rather
than pensions and other investment products.
And what the government still don't seem to have cottoned on to
is the fact that nobody believes their guarantees anyway. A fair chunk
of those queuing up two weeks ago had £2,000 or less in the Northern
Rock, and so their money was already safe. Except they knew it wasn't.
Given all the failures to deliver speedy compensation to farmers and
pensioners under other government schemes, folk decided they would
prefer their money in their pockets than to believe the silken words of
the politicians.
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